6/05/12
Stocks struggled early on Monday but managed to come back about break-even by the close with the indices finishing mixed. The Dow lost 17-points, the S&P was flat, and the Nasdaq gained almost a half of a percent.
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[TR]
[TD]
[TD="align: center"] Daily TSP Funds Return
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[TD="align: right"] G-Fund:
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[TD] +0.012%
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[TD="align: right"] F-fund:
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[TD] - 0.22%
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[TD="align: right"] C-fund:
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[TD] +0.01%
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[TD="align: right"] S-fund:
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[TD] - 0.37%
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[TD="align: right"] I-fund:
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[TD] +0.34%
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The comeback yesterday was not quite enough for the S&P 500 to get back above the 200-day Simple Moving Average (SMA). I usually just watch the 200-day exponential moving average (EMA) but when the SMA is in play, I know enough traders and investors are watching it for me to pay attention too.
You can see that the green SMA line below has done a pretty good job of acting as support or resistance over the last year or so, but once it's broken for more than a couple of days, it is generally preceding a big move. Because of that, the S&P better get back above it pretty quickly, or else...
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The NYSE overbought oversold indicator is back in oversold territory at -520, but we saw it get much worse on the first push lower.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
The dollar did pull back slightly from it's recent highs, but it has already run into the rising support line of the recent trading channel. For the stock market to rebound, we may need to see that support break on the dollar. But with the news out of Europe continuing to disappoint, it may be too much to wish for.
Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk
I don't know if you saw it, but one of the small credit rating agencies knocked the U.K.'s credit rating down from AA to -AA on concerns over the health of British banks.
As the title above says, my fear meter is certainly buzzing. I know that my inner fear indicator is usually a pretty good contrarian indicator - meaning it's probably a better time to buy then to panic, so why am I getting panicky?
I watch a lot of stock market television during the day as it's on almost all day somewhere around me, and the bears are getting their camera time with the market doing so poorly.
They are painting such a negative picture of the economy with phrases like, "the dominos are starting to fall", "we're heading into a double dip recession", "this is the worst recovery out of a recession since...", etc. Even George Soros, certainly considered an expert in currencies, said the European Union has 3-months to save the euro, or it will be gone. Ouch!
It kind of makes you want to dig a bomb shelter, take your money out of the market and the banks, hoard food and gold, and wait for the end.
But since I am a contrarian investor, I try not to let the headlines dictate my positions. The charts and indicators do that, and that is why that 200-day SMA on the S&P is really important to me right now.
The S&P 500 touched correction territory briefly yesterday, being down 10% from the highs. SentimenTrader.com shows us the prior instances where the S&P 500 hit a 52-week high within the last 3-months and hen was down 10% from that level for the first time.
Chart provided courtesy of www.sentimentrader.com, analysis by TSP Talk
You can see that the last 6 instances saw some very positive initial results, but prior to that there were some very troubling sell-offs. In 2007 we saw a nice snap-back rally over the following month, but then all hell broke loose. That's what I am afraid of now.
There are signs of "hell breaking loose" with the trouble in Europe and our own economic slowdown. Some are starting to believe that the Fed may have to get involved (QE3?). Of course that would likely send the dollar lower and help stocks rebound, but for how long?
I think we can play for a bounce but we should not get overly comfortable. Keep one eye on the market at all times (200-day SMA), and keep one finger on the exit trigger - just in case.
Thanks for reading! We'll see you tomorrow.
Tom Crowley
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